Tuesday, August 24, 2010

State of the Stock Market - 8/24/10

A wild day on Wall Street today, as stocks gapped below key support to open the session and sold off hard for the first half hour of trading. From there, however, the market bounced hard all the way into lunchtime. From 11:40 until 2:40, the market pulled back again, but then another soft bounce took place into the final hour. Once again, though, the bulls showed how weak they are, as the bears took control again at 3:35 and sold the market back off into the close. Volume should be heavier than yesterday.

Technically, a lot of the indices I follow are at different technical stages right now. The Russell 2000 for instance bounced off its July lows this morning nicely and still is oversold, so a bounce materializing there looks somewhat promising. Financials are very close to their July lows but have not officially tested them. The Nasdaq on the other hand gapped below the key support around 2155-2160 (mentioned numerous times over the past few days) and has quite a ways to go before challenging its July lows. The S&P tested its mid-July lows around 1056 but could not close above that level and still has a ways to go before testing its July lows. So overall, a mixed bag - we could bounce here, but given the weak close, perhaps the morning bounce was about all we are going to see from the bulls. How's that for taking a stand, huh?

S&P 500

Nasdaq

Russell 2000

XLF

If you follow me on Twitter, you know that I made quite a few trades today. Going into the day, I was quite happy to see futures down so much as I was (and have been) heavily short the past week or so. I also knew that in this summer market, where breakdowns were "good" and breakouts were "bad", it doesn't pay to hang around a trade too long, so when I saw the early action, I decided to take profits on all of my shorts. I covered LVS for a 7.3% gain, AAPL for a 4.25% gain, and AMZN for a 2.2% overnight gain. Those are still not the type of gains I aim for on trades, but in this market, I'll take it. My main account is up about 7% over the past week as well and I can't complain about that.

At that point, after using a few scans from Telechart that showed the market quite stretched and individual stocks quite oversold, I decided to put some longs on with tight stops. I entered PWER at $9.63, IDT at $15.32, and IDSA at $13.65. Using Telechart, I was able to simply pull up my main momentum scan (for the strongest stocks over the past six months), sort them by RSI (2), and then found these three that were all stretched and in the case of IDT and PWER, very close to support near their 50 day moving averages. IDT did not work out, as I was stopped out at $14.94 for a 2.6% loss. I was also stopped out of IDSA late at $13.39 for a 2% loss. I guess I would have been better just stepping aside after covering my shorts but you're always going to make mistakes as a trader.

I'm not sure exactly where we go from here - around 3:00 I really expected a further bounce tomorrow, but that was a very, very weak close and I am not so sure now. With one long position and no shorts, I am leaning slightly long, but that's strictly a guess. My PWER trade has a stop in place and my risk is limited. A move even lower than today with some real panicky selling coming in would not shock me and if it happens, I'll just be in cash and feeling regret that I covered too quickly. The market is always trying to trick traders, and with that close, there is a good chance that it tricked me early in today's session. We'll find out tomorrow. Good luck Wednesday.

If you check DJI longer-term (10-year and higher time frames) chart, you will see that at the current moment the stock market is in the side-way corridor where is already was in 2000-2001 and in 2004-2005. This could explain inconsistency in different indexes - there is neither strongly defined down-trend nor strongly defined up-trend.

Overall Market Timing Score

March 20, 2014 -2March 19, 2014 +1(Max Score +6, Min Score -6)

The Market Timing Score has six factors that I record on a daily basis. These include breadth indicators, moving average indicators, accumulation and distribution indicators, and overbought and oversold indicators.

The max score of the Market Timing Score is +6, but this is very rare. Typically a score of +4 or +5 tells you that the market is very bullish. A score of +3 or +2 tells you that the market is bullish, but there are a few reasons for concern. A score of +1 or 0 tells you that cash is the best place to be. The scores work the exact same way on the negative side for bearish markets.

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Chart Swing Trader is a website intended for the education of online stock traders. The website is an information service only. The information provided herein is not to be construed as recommendations to buy or sell stocks of any kind. They are simply the opinions of the author. It is possible that the editor of this blog may own, buy, or sell stocks presented. All investors should consult a qualified professional before trading any stock. The author is not an investment advisor. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts made by the author are committed at the reader's own risk, financial or otherwise.